When a company is struggling financially, there is a very good possibility that it may be wound up by creditors through a formal insolvency procedure. It is the intent of these creditors to recover any money due to them which could entail the sale of the business and any of its assets. On the other hand, there are times when a business can be turned around with the help of an administrator who will take control of the company during that timeframe. If you are the director of a distressed company, it is important to understand both procedures and how they will affect your business.
We understand that the last people you would ever want to speak to would be a business rescue firm, but we also know that trying to understand your options can be equally challenging. We have seen every eventuality in business and can help clarify what your options are.
Administration is a formal procedure in which an insolvency practitioner is appointed as the administrator by the company directors, the company itself, its creditors of the company's debts or the Court. Once an administration order is granted, all legal actions against the insolvent company (including receivership and winding up petitions) are stayed for a period of about 8 weeks, during which time the administrator can draft a plan of action and propose it to creditors during a creditors meeting. The administrator assumes control over all assets and business operations with the goal of acting in the best interest of the company’s creditors, in order to repay as much as possible.
Receivership is a process in which a creditor appoints a receiver over one or more of the insolvent companys' assets or properties specified in a legal charge within a secured loan agreement. If the charge contains a provision that allows for express appointment then receivership can happen quickly and sometimes without sufficient warning. Although the exact privileges and rights of the receiver arise from the terms of the individual loan agreement, all receivers must abide by legislation.
From the company directors’ standpoint, receivership offers virtually no advantages because it will inevitably result in the loss of control of the assets of the company and often ultimately as well as the complete liquidation and dissolution of the company in most cases. On the other hand, administration simply puts control of your company into the hands of an experienced insolvency practitioner who will then develop a plan of action while the administration order is in effect. The options that may be examined during this time include a pre-pack administration sale, invoice factoring and other forms of financing, and the sale of some of the company’s assets.
If the company has enough assets to sell or is able to arrange a pre-packaged sale, then it may be possible to avoid receivership altogether. However, if the administrator is unable to find a buyer for the assets and goodwill then the liquidation and dissolution of the company would commence. Entering into a voluntary administration early is sometimes the best way to maximise your chances of avoiding liquidation, receivership, or any other negative action against your company. It also helps to preserve the value within the company.
When a secured creditor is threatening to appoint a receiver there is absolutely no time to waste, especially if your loan agreement allows for the creditor to appoint one themselves. Do not wait for them to take action before you start defending your company. Speaking with a licensed insolvency practitioner about options and possible outcomes as soon as possible is often the only way to avoid receivership, as the procedure is typically imminent when an individual director attempts to negotiate or postpone it without professional assistance.
If your company has been unable to keep up with financial obligations and you’re concerned about the possibility of going into receivership, or you’d like to discuss the option of administration, call us today on 0800 644 6080 to participate in a free consultation with one of our turnaround specialists and find out how we can help you mitigate or avoid this hardship altogether.